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  • Author: Derek M. Scissors
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: New data published in the American Enterprise Institute-Heritage Foundation China Global Investment Tracker show that China continues to invest heavily around the world. Outward investment excluding bonds stood at $85 billion in 2013 and is likely to reach $100 billion annually by 2015. Energy, metals, and real estate are the prime targets. The United States in particular received a record of more than $14 billion in Chinese investment in 2013. Although China has shown a pattern of focusing on one region for a time then moving on to the next, the United States could prove to be a viable long-term investment location. The economic benefits of this investment flow are notable, but US policymakers (and those in other countries) should consider national security, the treatment of state-owned enterprises, and reciprocity when deciding to encourage or limit future Chinese investment.
  • Topic: Security, Foreign Policy, Development, Economics, Emerging Markets, International Trade and Finance, Foreign Direct Investment, Sovereign Wealth Funds
  • Political Geography: United States, China, Asia
  • Author: John H. Makin
  • Publication Date: 03-2011
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The array of postbubble stresses and uncertainties identified in the January 2010 Economic Outlook (“The Year Ahead”) promised that the new year would see plenty of volatility in markets. That is exactly what is playing out as we move through the first quarter. As risks accumulate, it may be that 2010 is shaping up as a mirror image of 2009, reversing last year's down-then-up pattern with an up-then-down pattern this year.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy, Financial Crisis
  • Political Geography: United States, Japan, China, Europe
  • Author: John H. Makin
  • Publication Date: 06-2011
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Market conditions in the United States, Japan, China, and Europe portend a weakening global economy. While not dramatic in any one region save an earthquake-burdened Japan, these conditions could accumulate to create a problematic loss of momentum for global growth, especially compared to current upbeat consensus views for the second half of 2011.
  • Topic: Economics, International Trade and Finance, Global Recession
  • Political Geography: United States, Japan, China, Europe
  • Author: John H. Makin
  • Publication Date: 01-2010
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: We can expect 2010 to be a volatile year. This likelihood is underscored by looking back at 2008 and 2009. Two thousand eight was a highly volatile year leading up to the collapse of Lehman Brothers in September, which was followed by the risk of a total systemic meltdown. That sharp and obvious risk spike prompted massive policy responses that were simply the largest that central banks, with rate cuts and liquidity provision, and governments, with tax cuts and spending increases, could manage. The result—beginning in March 2009—was a linear rise in the prices of risky assets, the result of massive relief once the slip into a global depression had been averted and the acute phase of the crisis in the financial sector had passed.
  • Topic: Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States, Japan, China, Europe
  • Author: John H. Makin
  • Publication Date: 12-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: A new truth of geopolitics has emerged during 2009. It is that the complex and rapidly evolving Sino-American relationship has become the most important bilateral relationship either country has. To this observation, made recently by William C. McCahill Jr. in the November 13 special issue of The China Report, must be added another claim: the course of the Sino-American relationship in both the economic and the political spheres will play a growing role in determining the levels of global economic and geopolitical stability. Trips like President Barack Obama's three-day visit to Shanghai and Beijing November 15–17 will probably be made with increasing frequency in coming years.
  • Topic: International Relations, Foreign Policy, Diplomacy, International Political Economy, International Trade and Finance, Bilateral Relations
  • Political Geography: United States, China, America, Shanghai, Beijing
  • Author: John H. Makin
  • Publication Date: 07-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The recent steps by the Federal Reserve to preempt deflation have—ironically and unexpectedly— prompted a surge in inflation fears both inside the United States and abroad, especially in China. Specifically, the Fed's measures to go beyond the stimulus inherent in a zero percent federal funds rate by purchasing Treasury and mortgage securities has conjured visions—especially in the eyes of major buyers of Treasury securities, China foremost— of massive money printing to underwrite trillions of dollars of additional government borrowing at low interest rates. As markets have shown, if that were the Fed's intention—which it decidedly is not—the effort would fail because excessive money printing—creating a money supply larger than the quantity of money demanded— would push up interest rates as inflation expectations rose.
  • Topic: Economics, International Political Economy, International Trade and Finance, Monetary Policy
  • Political Geography: United States, China
  • Author: John H. Makin
  • Publication Date: 09-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: More than two years have passed since the U.S. housing bubble burst. That event ushered in a financial crisis that was not only intense but also stunning. So stunning in fact, that in August of last year, just a month before the collapse of Lehman Brothers, the global economy was close to a crisis worthy of comparison with the Great Depression, yet neither the markets nor the Federal Reserve had much of an inkling of what was to come. The Standard and Poor's (S) 500 Index had come down to about 1,300 from its October 2007 high of 1,576. Positive growth had just been reported for the U.S. economy during the second quarter of 2008 at an annual rate of 2.8 percent (later revised down to 1.5 percent). Almost one percentage point of that growth came from U.S. consumption, and government spending also contributed. The wave of relief after the Bear Stearns scare in March 2008 had provided a nice boost to the economy and to markets. That boost was further enhanced by the substantial contribution to growth from net exports (2.9 percentage points) thanks to what was, then, continuing strength in the global economy, especially in China, which had reported blistering 10.1 percent year-over-year growth in the second quarter of 2008. These and other positive components more than offset a drag from inventories and residential investment. In short, the real economy had not shown much evidence of damage emanating from the chaos that was churning in the financial sector.
  • Topic: Economics, International Political Economy, International Trade and Finance, Markets, Monetary Policy, Financial Crisis
  • Political Geography: United States, China
  • Author: John H. Makin
  • Publication Date: 11-2009
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The only thing scarier than the slide of the dollar, which has dropped by 15 percent since March, would be an attempt by the Federal Reserve to stop it. Such an attempt would show that we have learned nothing from the Bank of Japan's disastrous premature exit from a zero-interest policy in August 2000. Closer to home, it would resemble the Fed's premature move to mop up “excess” reserves by doubling reserve requirements in three steps between August 1936 and May 1937, which was followed by the third-worst recession of the twentieth century, from May 1937 to June 1938.
  • Topic: Economics, International Political Economy, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: United States, Japan
  • Author: John H. Makin
  • Publication Date: 01-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The bursting of every bubble is followed by statements suggesting that the worst is over and that the real economy will be unharmed. The weeks since mid-March have been such a period in the United States. The underlying problem—a bust in the residential real-estate market—has, however, grown worse, with peak-to-trough estimates of the drop in home prices having gone from 20 to 30 percent in the span of just two months. Meanwhile, the attendant damage to the housing sector and to the balance sheets tied to it has grown worse and spread beyond the subprime subsector.
  • Topic: Economics, Government, International Trade and Finance, Political Economy
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 07-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The Fed is in a bind, pulled toward easier monetary policy by a weak economy and fragile credit markets, while simultaneously needing to resist higher inflation. On Monday, June 9, after a weekend of headlines regarding a half-percentage-point rise in the unemployment rate, Federal Reserve chairman Ben Bernanke gave a pathbreaking speech entitled "Outstanding Issues in the Analysis of Inflation" at the Federal Reserve Bank of Boston's fifty-third Annual Economic Conference. In that speech, after suggesting that the risks of a substantial  economic downturn had diminished over the past month and citing further progress in the repair of financial and credit markets, he proceeded to address the problem of rising inflation. In two sentences, he contributed to a sharp, fifty-basis-point rise in two-year bond yields and boosted the market's assessment of the chance of a fifty-basis-point rise in the federal-funds target rate at the September 16 meeting of the Federal Open Market Committee (FOMC) from virtually zero to nearly 70 percent.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 01-2008
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The good news about the problems in the financial sector and the larger economy in the United States emanating from the persistent drop in house prices is that they will eventually end, and the underlying resiliency of the U.S. economy will reemerge. The bad news about these problems is that they are going to continue for some time and get worse before they improve. Efforts to address them so far have been ineffective because they have been aimed at containing a subprime credit crisis, not at containing a rapidly spreading primecredit, solvency crisis that is leading the U.S. economy into recession.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: Roger Noriega
  • Publication Date: 08-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: U.S. policy in Latin America and the Caribbean always seems to inspire criticism: Too much, too little, too late. Back off. Get in the game. Don't just stand there, do something. Don't do something, just stand there. Our geographic closeness has meant a rich, natural partnership, but this proximity easily stirs concerns over sovereignty. When the United States is preoccupied with events in other parts of the world, regional pundits accuse Washington of indifference. If we speak clearly on the issues in Latin America, we are excoriated for poking our nose “where it doesn't belong.” So where does this leave U.S. foreign policy in the region? It could be that what we do may not be as important as how we do it. The first step in developing a new paradigm for engaging the Americas is using the 2008 election cycle here at home to develop a serious domestic constituency for our policy. Then we should shape that policy through a conscientious dialogue with stakeholders in the region.
  • Topic: International Trade and Finance, Political Economy, Regional Cooperation
  • Political Geography: United States, America, Washington, Moscow, Latin America
  • Author: John H. Makin
  • Publication Date: 12-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: It is important at the outset to define the terms “financial firms” and “too much risk.” By “financial firms,” I mean commercial banks, investment banks, brokerages, and insurance companies that solicit and manage funds for the public. By “too much risk,” I mean actions undertaken by managers of financial firms that result in substantial losses for the shareholders (owners) of such firms. On an aggregate level, I call “systemic risks” those that emerge when regulators and policymakers are forced to choose between either reinforcing (with bailouts) the venturesome investing that created the problem or allowing substantial damage to depositors and shareholders in financial firms, and possibly to the economy as a whole.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 11-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Just as Wall Street was celebrating the presumed end of the latest financial crisis by pushing stocks to record highs, proclaiming continued strong earnings growth, and continuing to recite the mantra “slowdown, but no recession,” Treasury Secretary Henry Paulson provided a vivid reminder that the housing and mortgage crisis is not over. On Monday, October 15, while Citibank was reporting that compared with last year's results its third-quarter earnings had fallen by 57 percent, the Treasury's “super-SIV” plan was revealed. It seems that the Goldman Sachs alumni at Treasury—Paulson and his under secretary for domestic finance, Robert Steel—had become concerned that the offbalance- sheet special investment vehicles (SIVs) held by commercial banks might not be financeable. That would mean that not enough investors could be found to provide the short-term financing necessary to sustain SIVs, the repositories of hardto- value securitized mortgages that continue to plague bank balance sheets.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 10-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The global economic and financial picture is changing rapidly. A review of some of the key elements is in order, as the U.S. economy has slowed rapidly and the Federal Reserve has responded aggressively with rate cuts, while the Bank of England's tough policies pushed one of the United Kingdom's largest mortgage lenders, Northern Rock, to the brink of collapse as a bank run on that suddenly beleaguered institution ensued. Meanwhile, Japan, still the world's second-largest economy—though perhaps the least dynamic of the major ones—slipped into negative growth at a 1.2 percent annual rate in the second quarter after having initially reported growth over 2 percent. The rate-boost-obsessed Bank of Japan finally decided to stop raising rates, and, to add to the complexity of the picture, Japan's relatively new prime minister Shinzo Abe resigned, unable to provide the leadership sorely needed in a nation lacking economic and political direction.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States, Japan, United Kingdom, England
  • Author: John H. Makin
  • Publication Date: 09-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: During a 10:00 a.m. conference call on August 17, 2007, Federal Reserve vice chairman Donald Kohn and New York Federal Reserve president Timothy Geithner were urging Citicorp chief executive Chuck Prince and his fellow big bank CEOs to use the Fed's discount window, which is set up to alleviate liquidity pressures on individual banks or on the banking system as a whole. Prince, the head of the world's largest bank (Or is it the second largest? No one really knows since bank balance sheets are so full of securities that cannot be priced.) may have been wishing that he had not chosen to offer a chillingly clear characterization of the global financial system a little more than five weeks earlier in a Financial Times interview on July 9, three weeks before the global credit markets began to seize up.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 08-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In a July 9 interview in Tokyo with the Financial Times about the surging, liquidity-driven financial sector, Citigroup chief executive Chuck Prince characterized the situation in global financial markets more insightfully than some investors might have wished: “When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.” Prince elaborated further, saying that (as the article paraphrased it) “the way big Wall Street banks and hedge funds had picked up troubled subprime mortgage lenders was an example of how 'liquidity rushes in' to fill the gap as others spot a buying opportunity.”
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States, Tokyo
  • Author: John H. Makin
  • Publication Date: 07-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The bond “conundrum” that Alan Greenspan spoke of toward the end of his tenure at the Federal Reserve is disappearing. Chairman Greenspan was drawing attention to unusually low longterm interest rates worldwide on bonds.1 More recently, however, in less than a month interest rates on U.S. ten-year notes have risen by 60 basis points with no change in expected inflation. The shift is all the more unusual because of its abruptness and relative magnitude: in statistical terms, it is a rise of three standard deviations in “real” (inflation-adjusted) rates in a market that has been quiet over the past five years. Moreover, the few “surprise” moves since the tech-stock bubble burst in 2000 have mostly been in a downward direction.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 06-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The American consumer is a very persistent spending machine. It is American consumption growth running at higher than 4 percent annualized— well above its long-term average—that has kept the economy comfortably out of recession for the past six months as the housing slowdown has subtracted more than a percentage point from growth. Even with a substantial additional drag on the U.S. economy from other areas—inventory liquidation, weakening net exports, and rapidly rising gasoline prices—the American consumer's spending surge has still been enough to keep GDP growth in positive territory.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On Friday, April 13, the Wall Street Journal's lead story on the unlucky U.S. economy was “Economy Enemy No. 1: Soft Capital Spending.” The nation's leading business newspaper was acknowledging a six-month slowdown in capital spending that has, along with the drag from the housing sector, been lowering U.S. growth.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 05-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In their April 21 press release following their spring meeting in Washington, D.C., the G7 finance ministers and central bank governors added an important sentence to their usual bland statement that exchange rates should reflect economic fundamentals: Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur. In their April 21 press release following their spring meeting in Washington, D.C., the G7 finance ministers and central bank governors added an important sentence to their usual bland statement that exchange rates should reflect economic fundamentals: Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur. The G7, significantly, also called for an increased role for the International Monetary Fund (IMF) to help countries, including those in the G7 but also China and others in emerging Asia, meet the macroeconomic and financial policy challenge of globalization. Specifically, the G7 supported the strengthening of IMF surveillance, including through increased emphasis on the consistency of exchange rate policies with domestic policies and a market-based international monetary system and on the spillover effects of domestic policies on other countries. The G7s endorsement of greater exchange-rate flexibility and of an enhanced IMF role in implementing it is important. The IMF, having been founded after World War II to maintain stable exchange rates among major economies, has become an advocate on behalf of the major economies of global exchange-rate flexibility. The lesson regarding the need for G7 currency flexibility was learned after Americas August 1971 abandonment of fixed exchange rates, which was followed by a decade of adjustments to higher oil prices that would have wreaked havoc under fixed exchange rates. The lesson for needed currency flexibility in emerging markets was learned after the disastrous attempt, fostered in part by the IMF, to impose fixed exchange rates during the Asian and Russian crises of 1997 and 1998, which prolonged and exacerbated the market gyrations caused by the crises. Sadly, China response to the G7-IMF call for greater currency flexibility has been both negative and misguided. China's foolishly insouciant attitude, captured in a comment by Zhou Xiao-chuan, governor of the Peoples Bank of China, carries with it serious risks both for China and for the world economy. Zhous remark was quoted on April 24 in the Wall Street Journal: [T]he speed of moving forward (on yuan appreciation) is OK. Its good for China and welcomed by many other countries. China's currency has appreciated only 1.2 percent since its initial 2.1 percent revaluation last July 21. That is less than OK. The total 3.3 percent revaluation against the dollar really represents no adjustment at all in view of the 1 to 2 percent inflation differential (lower in China) that has persisted between the United States and China over the past two years. If China had allowed prices to rise instead of mandating caps on prices of important commodities like gasoline, there would be less pressure for the yuan to rise in value. Both the intervention to cap the yuans appreciation and the capping of domestic prices are building up potentially disruptive inflation pressure inside China, as we shall see below. The most dangerous aspect of China's increased efforts to prevent yuan appreciation, as measured by accelerating reserve accumulation over the past year, is the rising pool of liquidity inside China that has resulted. The level of excess reserves in Chinese banks is now larger, relative to GDP, than the level of excess reserves built up in Japan from 2001 to 2005 during the years of a prolonged, desperate struggle against deflation. China's currency undervaluation, coupled with the massive liquidity buildup in its banking system, has resulted in excessive investment in China's state enterprises that have close traditional ties with the liquidity-sodden banks. The usual Chinese response to excess reserves has been to boost reserve requirements for its banks. But to absorb the huge pool of excess reserves now in place, reserve requirements would have to be boosted by 5 percentage points to 12.5 per-cent, going far beyond previous moves of 0.5 to 1 percentage point, and far beyond what China's shaky, insolvent banks could endure. When the Peoples Bank of China boosted its one-year benchmark lending rate on April 26 by 27 basis points (to 5.85 percent), it took a tiny step that will do little to tighten China's monetary stance.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States, China, Washington
  • Author: John H. Makin
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Concerns over deflation have dominated monetary policy during the past several years in Japan, and also in the United States as recently as 2003. As a result, the Bank of Japan and the Federal Reserve have been highly accommodative. In Japan, this took the form of a zero interest rate. In the U.S. context, it was manifest in rates at well below normal yardsticks, such as nominal GDP growth that would call for U.S. policy interest rates close to 6 percent rather than at current levels below 5 percent. Unusually accommodative monetary policies and the substantial liquidity flows they have entailed have boosted asset values and compressed risk spreads. Consequently, demand growth has persisted at high levels for long enough to cause modestly higher inflation. The time has come for tighter monetary policy, and central banks in the United States, Europe, and Japan have all begun to apply it.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Japan, Europe, Israel, East Asia
  • Author: John H. Makin
  • Publication Date: 01-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On Tuesday, January 18, the yield on fifty-year inflation-protected U.K. government bonds (what the British call "indexed-linked gilts") dropped to 0.38 percent, about one-seventh the historical average of just over 2.6 percent for such debt instruments. Just a few months earlier, that yield had been over 1 percent, still extraordinarily low by historical standards, and especially low in an economy that has experienced fifty-three consecutive quarters of positive growth. A yield drop from 1 percent to 0.38 percent on a fifty-year bond corresponds to a 30 percent rise in its price over a period of just three months. That is an annual return of over 100 percent, much higher than the 13 percent annual increase in U.S. house prices at midyear and the 20 to 30 percent gains seen in the stock market before the March 2000 crash. The asset bubble has spread to long-term government bonds, especially those with inflation protection. What is going on here?
  • Topic: Economics, Government, International Trade and Finance
  • Political Geography: United States, United Kingdom, Europe
  • Author: Peter J. Wallison
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In December, the London Stock Exchange celebrated a record year for foreign company new issues, with 129 new listings by companies from twenty-nine different countries. In contrast, the New York Stock Exchange registered a net gain of six foreign listings (a gain of nineteen and a loss of thirteen) in 2005, and NASDAQ gained a net of fourteen. According to a press report by the London Stock Exchange on its success, “about 38 per cent of the international companies surveyed said they had considered floating in the United States. Of those, 90 per cent said the onerous demands of the new Sarbanes-Oxley corporate governance law had made London listing more attractive.” By now, it is well-known what harm Sarbanes-Oxley has done to the attractiveness of the U.S. securities markets, but what is not well- known is that the lack of resources available to a relatively obscure accounting group—engaged in the development of a technical-sounding disclosure system called XBRL—may also threaten not only the current primacy of the U.S. financial markets, but also the future competitiveness of U.S. companies.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, New York, London
  • Author: John H. Makin
  • Publication Date: 02-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The average forecast for 2005 U.S. growth is 3.5 percent, with some prognosticators hoping for 4 percent. This forecast is predicated upon the assumption that the economy is on a sustainable expansion path, where consumption will be supported by steady growth of employment and household incomes. The 3.5 percent growth forecast for 2005 is identical to the mean growth rate of the U.S. economy since 1947. However, there is good reason to believe that the consensus forecast is too high. This possibility has important consequences because U.S. growth must be sustained at least at average levels to avoid a sharp drop in global growth. There are no signs of higher growth in Europe and Asia. Growth in Japan is looking weaker, while Chinese growth is moderating.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States, Japan, China, Europe, Asia
  • Author: John H. Makin
  • Publication Date: 01-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The pundits who have been predicting higher interest rates based on large U.S. budget and current account deficits have some explaining to do. Beyond the fact that very little systematic empirical evidence exists of a close link between deficits of any kind and interest rates, many high-profile commentators such as Robert Rubin and Pete Peterson, not to mention Pimco's Bill Gross, have consistently warned that long-term interest rates would rise as America's budget and current account deficits rose. Actually, U.S. longterm interest rates have been falling-from 4.8 percent in early June to 4.1 percent at year-end. Despite this stellar performance, Gross has even gone so far as to suggest that U.S. government liabilities should be downgraded from their top rating of AAA to AA.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States
  • Author: R. Glenn Hubbard
  • Publication Date: 09-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Ceremonial gift-giving is an integral part of doing business in China. The value lies not so much in the gift (whose packaging is often more elaborate), but in the possibility of cementing a mutually beneficial relationship. And so it was a few weeks ago with the headline-grabbing announcement that China would revalue the yuan against the U.S. dollar. The modest gesture may make more possible a comprehensive economic dialogue between China and the United States in the interest of both nations. The announcement on July 21 by the People's Bank of China that it would revalue the yuan, abandoning the eleven-year-old peg of 8.28 yuan per U.S. dollar, caught financial markets by surprise. The jolt led market participants to gauge effects of current (and perhaps future) revaluations on currency values and interest rates. And, some U.S. political leaders claimed a victory in the campaign to blame Chinese “market manipulation” for external imbalances facing the United States.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, China, Asia
  • Author: Mark Falcoff
  • Publication Date: 04-2004
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The collapse of President Jean-Bertrand Aristide's government in Haiti and his unseemly flight out of the country may have come as a surprise to Americans and others who were not watching closely. It could not have been unexpected by those who were. Haitian history tends to repeat itself, and after a long detour, the circle closed once again. Even the sudden occupation of the country by a multinational force headed by the U.S. Marines is not without precedent. The big question is whether this time the cycle of failure will be broken.
  • Topic: International Relations, International Trade and Finance, Political Economy
  • Political Geography: United States, Latin America
  • Author: Mark Falcoff
  • Publication Date: 01-2004
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Probably more than any other Latin American country, the Argentine Republic is susceptible to abrupt changes of spirit and mood. Ten years ago it was apparently hurling itself, pell-mell, into the twenty-first century as South America's great example of economic liberalization and diplomatic alignment with the United States. Today both notions are distinctly out of fashion there, and no wonder—the advantages of both were drastically oversold to the public by the administration of President Carlos Menem (1989-1999). At the end of 2000 the economy virtually collapsed; for a time it appeared as if the country might actually dissolve as a coherent political community. Thanks to the strong hand of Senator Eduardo Duhalde, who took over at the end of 2000 from Fernando de la Rúa, Menem's successor, civic order was restored, though the last three years have been the worst in Argentina's modern history, more dismal even than the Great Depression of the 1930s.
  • Topic: International Relations, International Trade and Finance, Political Economy
  • Political Geography: United States, Argentina, South America, Latin America
  • Author: John H. Makin
  • Publication Date: 12-2004
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The last big wave of European and Japanese concern about a weak dollar came after the August 1971 breakdown of the Bretton Woods System of fixed exchange rates. At that time European countries feared inflation and, not wanting to support the dollar and thereby import U.S. inflation pressures, they accepted revaluation of their currencies with some misgivings because, as always, a weaker dollar meant more difficulty in competing with vigorous U.S. traded-goods companies.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States, Europe
  • Author: John H. Makin
  • Publication Date: 10-2004
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The U.S. post-bubble economic recovery, which officially began in November 2001 after a recession of just six months, will be three years old by election day. The prior recession had lasted a mere eight months-from July 1990 to March 1991-and was followed by an expansion of ten years, the longest on record. The expansion before that one lasted ninety-two months-from November 1982 through July 1990-following a recession of just sixteen months. The period following November 1982 until the stock market crash of March 2000 witnessed one of the longest and most powerful stock market rallies in U.S. history, accompanied by falling inflation and falling interest rates. The remarkable performance of the last twenty or so years will be difficult to match over the next decade. Indeed, merely sustaining the growth in the current expansion will require some changes to current policy.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 01-2004
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Old habits die hard. Often, criticism leveled at policymakers is well founded. I certainly have offered up my share. But as 2003 ends and 2004 begins, we find ourselves at a point where the performance of the U.S. economy is about as good as it gets. The stock market is up 20 percent this year, inflation and interest rates are low, productivity growth is high, and U.S. exports are rising strongly. The biggest danger going forward arises from ill-founded criticism aimed at policy measures employed to achieve this excellent outcome and the (fortunately low) chance that policymakers will heed such criticism.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 12-2003
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The policy stimulants administered in very large doses to the U.S. economy at midyear are wearing off fast. China's boom, while not ending, is cooling. The result of those two facts will be U.S. growth of 3 percent or less in the final quarter of this year and the first quarter of next before tax rebates kick in to provide a lone quarter of 4 percent growth next spring. Then it will be back to 3 percent, plus or minus half a percent, in the second half of 2004 as the boost from tax cuts fades, provided stock markets hold up.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States, China
  • Author: John H. Makin
  • Publication Date: 11-2003
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The outlook for the global economy has become clouded since the September annual meetings of the International Monetary Fund and World Bank in Dubai. Going into the meetings, views were broadly optimistic, tied to the familiar, reassuring sense of a recovering U.S. economy, the prospect of rising exports, and a firm dollar. America, an oasis of firmer demand growth in a desert of global excess capacity, was back— again, for the second time since the bubble economy burst in March 2000. Only this time, it was for real, not like the false, post-9/11 recovery that fizzled out in the spring of 2002. Or, so it seemed.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States, America, Dubai